Insurance & Benefits

Direct Contracts Are Growing Because “PPOs Don’t Work Anymore”

Direct contracting is quickly growing in the insurance world because “PPOs don’t work anymore,” according to Bud Brooks, Vice President of Sano Surgery. Brooks spoke at a Free Market Medical Association luncheon in Dallas earlier this month and has 25 years in the healthcare and benefits space.

PPOs artificially inflate the cost of medical care, Brooks says, because the carriers who build the networks need to take a cut for themselves. Direct contracting offers a level playing field for payors and providers, where neither are dependent upon discounts on inflated prices, or threats to cut people out. If the price is fair and reasonable, Brooks says, the two parties can agree on a price as they would in any other segment of the economy.

Direct contracts are only possible for self-insured companies, which is a growing group. In 2000, only half of employers were self-insured, but the advent of the Affordable Care Act and rising healthcare costs has pushed more companies to insure themselves, giving them more control over how their healthcare dollars are spent.

More self-insured employers have meant more surgical bundles, which can exist alongside traditional insurance but can cut down costs. Brooks encourages employers to avoid carrier-owned third party administrators and focus on one of the 300 independent TPAs around the country who are interested in facilitating direct contracts.

Surgical bundles are frequently included in direct contracts, where employers will contract with a surgical center or other provider and surgeon to get a price up front for certain planned surgeries. The bundle includes a fee for the facility, surgeon, anesthesiologist, implants, pre operative consult, routine post-operative care, and a follow up visit. For the set prices, surgical centers usually see healthy adults that are not likely to have complications. The prices are predictable, transparent, and usually cheaper, Brooks says. His research has showed hospital fees are 50-60 percent higher than surgical centers for Medicare patients.

Challenges to using the direct contracts and surgery bundles include familiarity and how it may cause a patient to leave the surgeon with whom their primary care doctor connected them. Many employers offer to completely pay for surgeries at the surgical centers because of the savings, so Brooks says saving $5,000 or more is worth switching surgeons.

As healthcare costs continue to rise, Brooks says employers are becoming more proactive in finding spending solutions. “More and more employers are saying enough is enough,” he says. “We have to do something different.”


Keep me up to date on the latest happenings and all that D Magazine has to offer.